Published: Sun, June 06, 2021
Tech | By

G7 nations near historic deal on taxing multinationals

G7 nations near historic deal on taxing multinationals

Worldwide discussions on the tax issue gained momentum after U.S. President Joe Biden backed the idea of a global minimum of at least 15% on corporate profits.

She added: "Under pillar two, the G7 also agreed to the principle of at least 15% global minimum corporation tax operated on a country-by-country basis, creating a more level playing field for United Kingdom firms and cracking down on tax avoidance".

Under Pillar One of this historic agreement, the largest and most profitable multinationals will be required to pay tax in the countries where they operate - and not just where they have their headquarters.

The G7 also committed to continue supporting the poorest and most vulnerable countries as they address health and economic challenges associated with COVID.

At the moment companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there. The new reforms will affect the world's largest firms with profit margins of at least 10%, U.K. Finance Minister Rishi Sunak explained.

On the climate change front, the G-7 ministers agreed to urge major firms to curb greenhouse gas emissions by obligating them to disclose estimates of how global warming will impact their performances to provide "consistent and decision-useful information for market participants".

"After years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age", he said. Multinational tech giants such as Amazon and Google are expected to be among those covered in the ambit of the proposals.

Britain's Chancellor of the Exchequer Rishi Sunak (back C) and U.S. Treasury Secretary Janet Yellen, (C, R), at a meeting of finance ministers from across the G7 nations at Lancaster House in London on June 4, 2021.

The overall aim is to stop multinational firms shifting profits between jurisdictions to lower their tax bills, make them pay more in countries where they operate, and adapt the system to cope with trade in intangibles like data and information.

Among the G-7 nations, Japan, France and Germany supported the USA proposal. "Today's agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system", Clegg said.

German finance minister Olaf Scholz told reporters it was the "right time" for a global tax deal given the vast sums spent by governments "to protect citizens, stabilise the economy and save jobs" since past year.

French economy minister Bruno Le Maire had told journalists in London that 15% is "a minimum".

Britain wants multinationals to pay taxes that reflect their operations, as nations across the world seek to fix virus-battered finances.

Biden has called for a unified minimum corporate tax rate of 15 percent in negotiations with the Organisation for Economic Co-operation and Development (OECD) and G20.

"But it has to happen but on an worldwide level, not to be unfair to Ireland or single us out or any other small trade country because trade and jobs are essential to us here and I think our tax system is sound and it is fair", he said.

But Irish finance minister Paschal Donohoe, whose country is potentially affected because of its 12.5 per cent tax rate, said any global deal also needed to take account of smaller nations.

They say that a "race to the bottom" saps precious revenues that could go to government priorities like hospitals and schools.

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